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Managing Your Debt – The First Step Toward Homeownership

Money being managed and stacked next wooden house

Buying a house is an exciting prospect, but there are a number of financial elements that need to be considered before shopping for a new home, particularly with regard to debt management. You’ll need to consider what you can afford, calculate your cash availability, and become familiar with your credit score. 1st & Main Investment Advisors can help you gain your financial freedom, but in the meantime, consider these tips before you take the leap toward homeownership. 

Know Your Score

Lenders determine your creditworthiness, to a large extent, by your credit score. Your credit score is a compilation of data compiled by three credit reporting agencies, Experian, TransUnion, and Equifax. These companies track information from all of your creditors about how you use credit, and how much debt you carry. According to CNBC, you shouldn’t be using more than 30 percent of your available credit – for example, that means carrying a balance of no more than $300 on a $1,000-limit credit card. If you’re under that threshold and pay your bills on time, you probably have a good credit score. If you’re regularly missing payments, are in collections, or have maxed out your cards, your score is likely to be lower.

Improving Your Credit Rating

Mortgage lenders determine not only the loan products available to you but loan amounts and interest rates, based on your income, your outstanding debt (known as debt-to-income ratio) and your credit score. Consumers have the right to request a free credit report each year. You can also pay for your own reports via the different reporting agencies. If there are any inaccuracies, reporting agencies have an appeals process whereby you can petition to have the incorrect information removed. You should also be able to view your credit utilization, which will help you understand where it’s most prudent to pay down debt as a way to increase your score. According to Real Simple, not all debt is bad, some is actually good – it shows lenders you can responsibly use credit.

Comparing Loan Options

There are a variety of different loan options when it comes to buying a house. Lenders typically require that you put down a certain percentage when you buy a home, which can range from 0-20 percent or more. For example, if you want to buy a $200,000 property, you may have to come up with as much as $40,000 in cash to make the purchase. That can be a steep price for many people, but fortunately, there are a wide range of specialized loan packages you might be eligible to utilize, such as first-time homebuyer loans, rural loans, or VA loans, which are available to military veterans.

Finding Your Home

Many people start their home-buying search by looking at online real estate sites, or getting a real estate agent to help them. An agent can be an asset in many ways, and they can also introduce you to lenders who can help you evaluate your finances and make a plan for finding and buying a home in your price range. Keep in mind, even if a lender says you are qualified for “X” amount of mortgage funding, you should still assess your budget and buy a home that you’ll be able to comfortably afford. Remember, your mortgage often includes not just the cost of the loan, but insurance, real estate, and escrow fees as well.  

Proper financial planning is the first step on the path to homeownership. 

Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. (BFCFS). Member FINRA/SIPC. Investment advisory services offered through BFC Planning, Inc. 1st & Main Investment Advisors, BFCFS, Any Third-Party Content Creators, Gainfully, Inc. and BFC Planning, Inc. are independent entities. Our company makes no representation as to the completeness or accuracy of information provided by Third-Parties.
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